Oil prices fell early Monday, weighed by the Federal Reserve policymakers indicating a cautious approach to interest rate cuts, in relatively quiet trading amid the US’s President Day holiday.
April contract Brent crude oil futures shed 0.68% to $82.90 per barrel, while the US West Texas Intermediate (WTI) crude futures expiring in the same month lost 0.73% to $77.89 per barrel.
China has yet to unveil its oil demand trajectory following a week-long Lunar New Year holiday. Traders are also expected to observe fairly thin trading due to the public holiday in the US.
In the Middle East, geopolitical conflict continued over the weekend as the assault from the Israeli Defense Force (IDF) shut down Nasser Hospital in Khan Younis, Gaza’s second-largest hospital, while Yemen’s Houthi rebels fired missiles at an India-bound ship carrying Russian crude in the Red Sea.
The Organization of the Petroleum Exporting Countries (OPEC) would be able to compensate for a large part of the disruption, according to analysts, considering its spare capacity of 6.4 million barrels per day (bpd) is at its highest in eight years.
Diplomats stated that the United Nations Security Council (UNSC) may vote on Tuesday about an Algerian move to call for an urgent ceasefire in the Israel-Hamas war. The US has signaled its intentions to veto the draft resolution.
Fed’s Gradual Approach to Rate Cuts Could Pressure Oil
Fed officials on Friday suggested ‘patience’ and to ‘resist the temptation to act quickly’ on trimming interest rates after official data showed that sticky inflation in the US persisted while retail sales and factory output declined.
San Francisco Fed President and a voting member of the central bank’s policy this year, Mary Daly, said they are near achieving price stability, but there remains much to be done, and they would need ‘fortitude’ to complete the job.
The Fed is currently awaiting further economic cues after raising rates to a 23-year high to control higher prices.
As inflation moves closer to the central bank’s annual 2% target in recent months, policymakers have signaled the potential for cutting interest rates in 2024. However, the time to start such a move has yet to be determined, with some officials expressing concern about announcing a win over inflation too early.
Daly stated that they need more time and data to ensure their expectations would be met, voicing her support for the Fed’s gradual consideration of a rate cut.
Keeping interest rates high for longer would sustain the increased cost of purchasing oil, potentially resulting in a bearish market trend.
